Tesco 2015 Annual Report Download - page 101

Continuing operations Notes
2015
£m
2014
£m
(Loss)/profit before tax from continuing operations (6,376) 2,259
Adjustments for:
IAS 32 and IAS 39 ‘Financial Instruments’ – fair value remeasurements 126 11
IAS 19 ‘Employee Benefits’ – non-cash Group Income Statement charge for pensions 1,26 204 117
IAS 17 ‘Leases’ – impact of annual uplifts in rent and rent-free periods 112 22
IFRS 3 ‘Business Combinations’ – intangible asset amortisation charges and costs arising from acquisitions 113 14
IFRIC 13 ‘Customer Loyalty Programmes’ – fair value of awards 1–10
Restructuring and other one-off items:
Impairment of PPE and onerous lease provisions included within cost of sales 11 3,802 734
Impairment/(impairment release) of PPE and onerous lease provisions included within (losses)/profit arising on property-related
items 11 925 (98)
Impairment of goodwill 10 116 –
Impairment of intangible fixed assets(a) 50 –
Impairment of investment in China associate(b) 630 –
Impairment of investment in and loans to joint ventures and associates(c) 82 –
Inventory valuations and provisions(d) 570 –
Provision for customer redress 27 63
ATM rates charge(e) 41 –
Loss on disposal/closure of non-core businesses(f) 81 –
Restructuring costs including trading store redundancies(g) 416 –
Other restructuring and one-off items 74 102
Total restructuring and other one-off items 6,814 801
Reversal of commercial income recognised in previous years(h):
Recognised in 13/14 53 –
Recognised in years prior to 13/14 155 –
Other losses/(profits) arising on property-related items 60 (180)
Underlying profit before tax from continuing operations 961 3,054
(a) As a result of changes to simplify the UK business, a number of IT projects have been cancelled, resulting in an impairment of intangible fixed assets.
This charge has been recognised in cost of sales.
(b) Increasing competition from Chinese e-commerce businesses as well as the financial impact of a longer-than-expected integration of operations is
expected to affect short-to-medium-term profitability of the associate, resulting in an impairment charge in the year recognised in administrative
expenses.
(c) Investments in and loans to the Harris + Hoole and Euphorium businesses have been impaired as a result of the strategic decision to slow the roll-out
of these brands recognised in administrative expenses.
(d) This includes a £402m charge relating to increased inventories provisioning due to changes to range and stockholding, including general merchandise
transformation, and the adoption of a forward looking provisioning methodology. An additional £107m charge relates to changes in the estimate of
in-store payroll overheads which are directly attributable to inventories, arising due to the change in focus of our in-store activities. The Group has also
changed its accounting policy to exclude certain in-store overheads from directly attributable costs in order to reflect more reliable and relevant
information. If the policy change were applied retrospectively, it would have reduced the 2013/14 inventories balance by £59m, of which £10m would have
impacted the prior year income statement. As these amounts are not material, the prior year comparatives have not been restated and the cumulative
policy adjustment of £61m has been reflected in the current year.
(e) During the year, the Group received a notification from the Valuation Office that it had moved to a separate assessment of rates for ATM sites in Tesco
stores. This resulted in a backdated charge of £41m. The charge in respect of the current year is included in underlying profit within cost of sales.
(f) This includes the loss on disposal of Blinkbox Movies and Music, and redundancy cost, asset impairments and other costs associated with the closure
of non-core businesses including Blinkbox Books and Tesco Broadband. Of this loss, £74m has been recognised in cost of sales and £7m was recognised
in administrative expenses.
(g) Restructuring costs include redundancy and compensation costs related to changes in store colleague working arrangements in the UK, Europe and Asia,
redundancy costs relating to Head Office restructures across the Group, and the redundancy cost of store closures in the UK. £266m has been recognised
in costs of sales and £150m within administrative expenses.
Commercial income
(h) On 22 September 2014 the Group announced that the previous guidance given on 29 August 2014 regarding profit for the six months to 23 August 2014
was overstated principally due to the accelerated recognition of commercial income and delayed accrual of costs. The internal investigation into the appropriate
recognition included a review of whether the impact of accelerated recognition should be attributed to prior years.
At the time of the interim results, the impacts on prior years were estimated as resulting in the profit before tax for the year ended 22 February 2014 being
overstated by £70m and for the years prior to that being overstated by a total of £75m.
Following further investigations, these estimates have been revised to a total overstatement to profit before tax of £53m for the year ended 22 February
2014, and a total overstatement of £155m for the years prior to that.
On the basis that these figures are not material in the prior years, a prior year restatement has not been made with the amounts instead being corrected in
the current year. The impact of this has been separately identified in the reconciliation of profit before tax to underlying profit above as the correction does
not reflect current year performance.
Note 3 Income and expenses continued
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